The mobile phone, which has become much more than a ubiquitous part of your life, has changed the telecommunications industry landscape inside out and raised the bar for the way network operators and providers have to operate. Now telcos need to put their money where the data is. Visvas Paul D Karra delves deep to find out in which way Oman’s telecom service providers are headed .
The Sultanate was recently ranked 32 out of 144 countries in the World Economic Forum (WEF)’s 2013 Global Competitiveness Report. Based on social and economic factors, the report states that Oman is progressing towards a knowledge and innovation-driven economy using a comprehensive and competitive communications industry, which the WEF says is one of the key drivers for economic growth. Telecom service providers in Oman have lowered the costs of voice and data services and introduced the latest handsets and devices into the market, stimulating progress.
Another report issued by AREGNET (Arab Regulators Network), states that the broadband service in Oman is amongst the most competitive in the region. The 2012 telecoms retail price benchmarking report for Arab countries also published in March 2013 shows that, in Oman, high usage residential and business broadband packages are being provided at the lowest cost in the region, while mobile broadband in the Sultanate is the second cheapest out of the 22 countries surveyed.
The study also shows that broadband in Oman in the 2 Mb/s to 8 Mb/s speed range is ranked most competitive in the region for both business and residential customers as Oman’s telecom network operators have reached an advanced stage where they are able to provide 4G services (see pie chart 1: Broadband subscribers – Proportion by Speed-Q1, 2013). The high rating shows that there has been a huge drop in tariffs, as well as nearly twice as many service options since the last report in 2010.
All this seems to be laudable news but falls short of a standing ovation because these developments have come at a cost for the telecom operators in the Sultanate. While the country may figure among the top in the rankings table, the inside story has been all about keeping the mast flying high despite the turbulence that is threatening the sector. A decline in revenues from the traditional services such as land lines, voice and SMS; intense competition due to number of players; higher costs of human resources; and ever changing technologies have all scripted an edge of the seat “plot” for telecommunications executives who are biting their nails in anticipation of what’s next even before they have completely surmounted the present challenges.
According to a report by Business Monitor International (BMI) in May, 2013, while there are a number of positives, the Sultanate’s market is limited by the small population size and is approaching saturation for some services, notably voice (fixed and mobile) services because of which operators have shifted their strategy towards up-selling higher-value services like broadband to existing customers in order to sustain revenue growth.
According to the BMI report, mobile subscriptions increased by 9.7 per cent in 2012 to reach a total of 5.278mn and a penetration of 181.7 per cent (which has now been revised to less than 150 per cent due to changes in population figures). The TRA data show 3G subscriptions grew by 12.7 per cent to bring total growth in 2012 to 48 per cent. Operator data show monthly blended mobile ARPU (average revenue per user) continued to decline, with the market average down by 7.6 per cent year-on-year to RO8.4 in the fourth quarter of 2012 (see chart 2: ARPUs).
Data seems to be headline for every telecommunications provider because of the changing social mores, wherein people want to remain “connected” to one another more than ever not just with making a simple voice call on the phone but also through various social media applications found on the internet. If you observe the promotions or the catchy advertisements that appear across all media, the message has shifted from luring customers with offers of lower call prices and more-for-less on voice rates etc to faster and better quality of internet and data services (see charts on broadband packages of various telcos).
“The services which all of us (telecom players) have seen go down significantly since the last few three or four years are the classical services like the landline phones, SMS etc. That’s only because people have started to use new age services like Blackberry messenger (BBM) and internet-based services like Viber, Whatsapp, Facebook and Twitter etc all of which are normally data based,” says Joakim Klingefjord, CEO, Majan Telecommunications (renna mobile).
The new services all sit on top of smart phones, tablet computers like iPad and other personal digital assistants (PDAs). Industry experts believe that these smart phone devices are the game-changers and the catalyst for this are internet services like YouTube, social media and other internet applications. “Actually what the smart phone relies on is an internet access and this is where the growth is and that’s where the demand for broadband is coming from,” says Klingefjord.
According to Dr Amer Rawas, CEO of Omantel, the data usage (internet) for Omantel network grew tenfold in the past three years but the revenues have not grown correspondingly (see chart on Internet Services). This has happened because there has been an erosion of values as a result of the revenue model adopted by over-the-head players like YouTube whose revenue model is advertising. “The more people use YouTube, the more advertising benefits it gets but even though it is using Omantel pipe (network), I am not able to capture that benefit because of the pricing structure I have adopted like having flat rates for broadband and so on,” Dr Rawas adds.And he says that its not just Oman but the global telecom industry which is suffering due to resource-hungry applications like YouTube and other social media.
A mobile reseller like FRiENDi is however on a different wavelength, seeing the demand for broadband as the proverbial goose with the golden egg. For FRiENDi, more data users means more good news. “We were the first in the pre-paid mobile market to launch a monthly data plan for internet users. This has changed the way the cost-conscious consumers used their mobile phones and since then, it has caught on very well in our target group and we see that this trend will continue,” says Martin Glud, CEO, FRiENDi Oman, Connect Arabia.
“I believe there is still room to improve your services and as internet usage increases the networks will get upgraded and more data capacity will continue to roll out. And that will be an obvious area where we can grow ourselves because the idea is to get even more customers through our unique services and products,” he adds.
Highly fragmented market
Before we go any further, it has to be realised that the telecommunications sector in the Sultanate is complex due to the high market segmentation caused by the total number of players (six) who are operating or will be operating in a country which has a population of just over 3.8 million. While the mobile telephony penetration rate is around 145 per cent, the fixed line penetration is just a minuscule fraction of that.
Five years ago a lot of excitement was generated by five mobile re-sellers (also known as MVNOs globally) who obtained class II licenses for resale of basic mobile services. The entry of Arabia Connect (FRiENDi Mobile), Injaz International (Apna Mobile), Kalam Telecommunications (later backed out and its license was awarded to an Omani company, Samatel), Majan Telecom (renna), and Mazoon Mobile meant that Oman’s mobile telephony market became highly segmentised.
To add to the fragmentation, Oman’s telecom watchdog, the Telecommunications Regulatory Authority, in November 2008 went ahead and granted the second integrated fixed line telecommunications licence (Class I) in the Sultanate to the Nawras consortium thus ending state-monopoly on the telecommunications sector.
A third Class I licence was granted in November 2012 to a consortium consisting of Awaser Oman Co and Hong Kong-based telco, PCCW International, to provide fixed-line voice and data services exclusively in the Governorate of Muscat for 25 years.
Presently, Omantel, Nawras, FRiENDi, renna and Samatel are actively operating in the country with various products and services.
The broadband ecosystem
In this complex telecommunications market place, the telecom players have no choice but to bow to consumer demands. And the demand now, more than ever, has shifted to data services, in other words, internet connection whether it’s a fixed or mobile. But, while in the old days, one would have been content with having a dial-up internet connection at home through a landline or an ADSL (broadband connection), today there is an overweight on mobility because of the changing socio-economic trends. Nowadays, teenagers, college kids and corporate executives all want internet with good speed on their smart mobile devices and in the same breath also demand a superfast broadband connection when they come home to roost. Home is where they watch online videos, play video games and download movies using the home broadband.
And smart phones have ushered in the age of individualism and this individuality is driving mobility beyond even the world average, admits Dr Rawas.
Concurring with this point, Ross Cormack, CEO, Nawras, points out that when they started their mobile services way back in 2005, only 30 per cent of the population actually owned a mobile phone. Now 180 per cent of the population has wireless devices. He quotes the WEF which says that Oman is at number seven among 200 countries in the world in terms of holding the maximum number of SIMs per user.
“It is the whole ecosystem which has made it possible. Clearly the infrastructure providers have raised their part of the game. That’s why we had to upgrade to smarter base stations which can provide a better customer experience in terms of speed for 4G. The interesting part is that the technology in the base stations recognises the device that you are using and give you as much frequency as your device can use instead of over-provisioning and taking frequency from others,” adds Cormack.
In this whole scenario, the smart devices have played a major role, nay, upped the ante. It’s the marrying of many worlds in which phone device manufacturers have become smart; technology companies are able to give faster data speeds; and telecommunications providers had no choice but to fall in line by giving consumers the best quality and latest technology and better data speeds.
Speaking further about the benefits of the network upgrades to the consumers, Cormack, says, “We have turbocharged our network to offer customers the latest technology for faster broadband speeds, wider coverage and greater quality of service. The launch of superfast 4G places broadband in Oman alongside the technology standards of the world’s leading countries and puts Nawras into the top ten per cent of global operators to have introduced this service.”
As most of the telecom companies have reached a saturation stage, as pointed out by the BMI report, now the challenge is in keeping ahead of the competition. That also means growing yourself amidst stiff competition, because not only it’s the fundamental nature of the sector that new services and new applications keep entering the market, but also the dynamic market forces act against the network operators and providers. In order to tide over this, they have to, for example, continuously shift their focus on newer promotional services based on the changes to the revenue mix. For example, when revenues from short messaging services (SMS) dropped, the telcos found that it happened because of Whatsapp, the internet based messaging application (see the chart on outgoing SMS).
“We are continuing to evolve our basket of services depending on market dynamics, be it changes in the revenue mix, market expectations or competitive pressures. They will continue to evolve and we will have to catch up,” opines Dr Rawas.
For renna mobile (Majan Telecommunications), it was the lack of operating expenditure which had put a lid on its execution strategy and consequently slowed its growth plans. But thanks to Oman Brunei Investment Company (OBIC) – a 50-50 joint venture between Oman’s SGRF and Brunei Investment Agency – which has supported by injecting capital, renna has got new vigour and focus.
Speaking about the investment in Majan Telecommunications (mobile brand name is renna), Abeer Mohammed Al Abduwani, CEO, OBIC, says that renna operates in matured market but they see numerous opportunities within the sector. Renna can take advantage of the high penetration in the market by intelligently tackling underserved market segments, complementing the customer portfolio of Omantel with whom it has a reseller’s agreement.
“The growth in broad band offers a good opportunity for renna to expand. Customers are using technologies such as VOIP (Voice over Internet Protocol) which use data networks (i.e. the internet) rather than traditional phone lines for home phone service. The expansion of 4G by Omantel is another platform for renna to grow as data services will be accessible at a faster rate,” says Abduwani.
Innovation is imperative
While the telcos devote their energies to cope up with the dynamic forces acting on them, another question which crops is whether the network operators and telecom service providers have reached a stage where their capacity to innovate comes a cropper.
The shift of innovation for new applications has moved from operators – where for example, the erstwhile Oman Mobile built a mobile application for SMS parking , news, help etc – to device manufacturers and app developers who are in their thousands and millions.
However, innovation exists among operators in the form of charging mechanisms, in optimising and monetising assets. They are also bringing innovation in providing a better customer experience through promotions and offers and also by ensuring that they get the right revenues from the right segments.
Klingefjord says renna has innovative offers like the Renna Friends price plan where friends can come together to call each other on renna mobile for the price of an SMS if they have subscribed to surfing plans.
According to Glud, their focus is on expatriates and cost-conscious users. Within these segments and sub segments they can give attractive and innovative offers. “Since sustainability is the key to our operations, at the end we have to generate cash flow back to the shareholders. We can only achieve this when FRiENDi provides attractive pricing, newer products and services as well as better customer experience,” Glud adds.
When talking about innovation, Samatel, the third mobile reseller, is quite unlike other telcos operating in the Sultanate. The company which has obtained the international gateway licence recently has taken innovation to a new level and would like to call itself a convergent service provider who provides telecom services with other value additions which will ultimately make a technology brand in the near future and not just a telecom company.
According to Gurkan Ozturk, CEO, Samatel, the company has undergone a major transformation not only in its shareholding pattern but also in its strategy, vision, mission, culture and business focus. The financial turmoil of the company is already over because the Al Zaman Group and Communications World have taken over and infused new life.
As a reflection of the company’s commitment to their new vision and to their aspirations of being the leading telecom provider in Oman, the management is working on rebranding the company and is preparing itself for unveiling the new brand in October.
Ozturk disclosed that the new brand name of the company will be “TEO”. He is confident that the rebranded company will bring a new breath to the telecom industry of Oman. He also believes the new brand has a very strong promise and will reflect the company’s new services and value propositions which will be offered to the public.
One such innovative offer from Samatel is the new international calling card “Allo”, a first of its kind for the Omani telecom market wherein you can make international calls from any mobile or fixed line phone connection by dialing a special number. The calling card offers flat rates 24 hours of the day.
As the hunger for data increases but the ability to monetise remains static, the challenge for telecos around the world is to find new mechanisms for stable balance sheets. While operators can defend themselves with the volumes game, it is hoped that state regulators will pitch in by charging the beneficiaries like YouTube and other social media as no industry can continue in losses.
“For the shorter and medium term, it will come from growth in volumes but in the future it will come from differentiation. There are already operators around the world who have been charging differently for different customer experience. If you want higher speeds, you will pay higher. But this is an evolution that starts somewhere and gets defused into different parts of the world,” Dr Rawas says.
On the other hand, Cormack says that content will be the king because customers will begin demanding more services for a location or a device of his choice at the timing of his choice so that he or she can view content in different ways. Many people are already watching TV on their mobile phones now.
Says Cormack, “The richness of the content has gone through the roof and its really only scratching the surface. I also see challenges and opportunities in the penetration levels. There are 3.8 million customers in Oman and only a quarter of those are using the mobile broadband on a regular basis, so that means we have three quarters who need to be reached out and we have lot of work.” Continuing further, he says, “I am sure we will join the new partners to deliver services in ways that we haven’t even thought of at the moment because that’s how quickly the industry is changing.” There are other avenues for revenue streams for network operators like cable landings which give some comfort but broadband is undoubtedly the king-maker.
Already, the Skype telephone service, which uses internet, has taken over 50 per cent of the voice market share and it’s only a matter of time before the traditional phone line becomes more of a data provider than the traditional voice.